IMF Working Papers

Capitalizing Central Banks : A Net Worth Approach

Author/Editor:

Alain Ize

Publication Date:

January 1, 2005

Electronic Access:

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Summary:

This paper provides a simple, quantitative, net worth-based, approach to assessing the need for central bank capital. It derives a concept of "core capital" (a function of the central bank's operating expenditures and the carrying cost of its international reserves) as the minimum capital needed by a central bank to ensure the credibility of its inflation target. The approach is illustrated with the published accounts of three loss-making central banks and selected accounting entries for a broader sample of central banks. Policy implications are explored. In particular, the paper argues that central bank capitalizations cannot be automatic and require instead a broad policy debate.

Series:

Working Paper No. 05/15

Subject:

Central bank capital Central banks Central banks and their policies Chile Costa Rica International reserves Monetary policy Mozambique Reserves